The Mortgage Arrears Dilemma

A recent report highlighted the increase in severe mortgage arrears had increased 16% from Q2 2020 through Q2 2021. Severe mortgage arrears are those loans where the arrears balance is between 2.5% and 5% of the loan total.

Buy to let mortgage arrears in the same category have increased 134% in the same period.

On paper this sounds alarming. Until you look at the figures a little closer.

To do this let’s go back 10 years and see where we have come from because the truth is a little less alarming.

Mortgage Arrears Since 2010

If we remember back to 2010, we were coming out of the credit crunch and starting to see a tightening of mortgage regulation.

If we then look at the figures a little closer we start to see that:

• The level of severe arrears haven’t changed during the last 10 years, this is regardless of the tightening of mortgage and lending criteria
• Non-Severe mortgage arrears haven’t really changed in the last 5 years

If you look at the figures as highlight, standalone statistics then it is more alarmist than the truth. When it comes to both mortgage and buy to let arrears, it remains a much smaller area of concern than many other forms of borrowing.

London Centric?

Setting aside the moratorium due to Covid, mortgage and landlord possession claims appear to be very London centric. The latest .gov statistics show:

“Decreases in possession claims have been recorded over all regions. Landlord claims remain concentrated in London (with 7 of the highest 10 claim rates)”

What Does It Mean For Lending?

The important bit. What does it all mean for lending? The bottom line here is that if we cut away the hyperbole, the level of mortgage defaults on both residential mortgages and buy to let remain low, both in current terms and over the longer term.

This means that we expect to see lending criteria loosen ever so little and for a rise in income multiples on regular mortgage lending. With buy to let we expect to see criteria remain broadly the same but with lenders more comfortable to lend outside of their standard criteria.

For landlords looking to expand their portfolios then the mortgage options open to them should continue to be available with lenders happier to look at other income and be a little more accepting of non-standard requests.

The message, avoid the media headlines, always look at financial statistics over a longer period and read between the lines.

For finance queries or requests, get in touch.

By Dave Farmer

References: Gov.uk, UK Finance